So, you’ve invested in property through your SMSF and decided it needs some work. The question now is how to renovate your SMSF property? Is it as simple as calling a contractor and beginning work? Or are there certain rules attached to your SMSF investment property to consider before you pick up the phone?
Am I Permitted to Renovate My SMSF Property?
It depends. The legislation regarding renovations on an SMSF property dictates that should you have borrowed funds to make the purchase you will be restricted in regards to what you are allowed to do to it.
If your SMSF purchased the property outright, then how you proceed is at your discretion. As the trustee, you may renovate, sub-divide or develop the property as you see fit.
What Are the Rules If I Borrowed to Buy?
If you borrowed through your SMSF then renovating your SMSF investment property becomes a little more complicated.
You may proceed only if:
- The improvements are made using existing funds in the SMSF and not via additional borrowing.
- The property is not so fundamentally changed that it represents a ‘replacement asset.’
What If My Property Needs Extensive Repairs?
At what point do repairs become renovations? How is this determined?
Repairs are considered anything that restores the original without changing its overall character. You may repair, replace or correct anything that has been broken or simply aged and become worn out. Damage from natural disasters or accidents is also considered repairs. While you may not borrow through your fund for renovations if the property isn’t owned outright, you are permitted to borrow for necessary repairs.
Renovations or improvements that would breach the rules for mortgaged SMSF properties are deemed to be anything that alters the property’s purpose or function. For example, converting a residential property into a commercial one such as an office. This would count as a replacement asset, as would any changes to the title deed whereby a sub-division is carried out or strata terms created.
Can I Do the Renovations Myself?
Regardless of whether you own the property or it is mortgaged through your SMSF, you are not permitted to carry out renovations yourself.
Where to Seek Help
Feeling confused or overwhelmed by the rules? At Corbwood & Associates, our skilled financial advisors can support you in navigating the rules surrounding how to renovate your SMSF investment property. Our goal is to help you prepare for your retirement and make the most of your SMSF without the risk of breaching any of the relevant legislation.
Don’t be put off investing or Buying Property with SMSF due to the complex rules involved. Let Corbwood & Associates guide you through. Contact us today on 07 5609 8874 to arrange a consultation to see how we can help secure your financial future.